Question

Required information Problem 7-40 Basic CVP Relationships (LO 7-1,7-2, 7-4) [The following information applies to the questions displayed below) Serendipity Sound, Inc., manufactures and sells compact discs. Price and cost data are as follows: Selling price per unit (package of two CDs) Variable costs per unit: Direct material Direct labor Manufacturing overhead Selling expenses Total variable costs per unit Annual fixed costs: Manufacturing overhead Selling and administrative Total fixed costs Forecasted annual sales volume (120,000 units) 10.50 5.09 3.00 1.10 19.80 $ $ 192.000 276,000 $ 168,000 $3,800,000 In the following requirements. Ignore income taxes. Drohlam 7.10 Dart < Prev 16 of 16 Next

Answer 1

Selling price per unit = $25

Variable cost per unit = $19.80

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 25-19.80

= $5.20

Contribution margin ratio = Contribution margin per unit / Selling price per unit

= 5.20/25

= 20.8%

Increase in direct labor cost = 8%

= 5 x 8%

= $0.40

Due to increase in direct labor cost by $0.40 per unit, variable cost per unit will also increase by $0.40 and it will became $20.20

new selling price per unit = ?

Let new selling price per unit = $K

Contribution margin per unit = Selling price per unit - Variable cost per unit

= K-20.20

Contribution margin ratio = Contribution margin per unit / Selling price per unit

20.8% = (K-20.20)/K

0.208K = K-20.20

K = $25.51

Selling price per unit = $25.51

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